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A new report from the Mortgage Bankers Association (MBA) shows that its Commercial/Multifamily Mortgage Origination Index declined by 56% year-over-year in the first quarter of 2023, and was down 42% quarter-over-quarter. The decline comes after a 54% year-over-year drop in originations recorded by the index in the fourth quarter of 2022. The MBA origination index is benchmarked at 100 as equal to an average quarter in 2001.

Compared to the first quarter of last year, life insurers pulled back the most on the volume of loans they originated—by 73%, followed by investor-driven lenders (down 67%), CMBS shops (down 59%) and depositories (down 54%). Lending volume year-over-year fell the least for government-sponsored agencies (GSAs)—by 14%, according to the MBA.

Life insurers and depositories continued to pull back on commercial/multifamily lending considerably compared to the fourth quarter of 2022—they were down by 56% and 48% respectively. Investor-driven lenders decreased their origination volume by 42% quarter-over-quarter and the GSAs by 40%. CMBS shops, however, stepped up their activity on a quarter-over-quarter comparison, by 99%.


The decline in mortgage originations is due to a confluence of factors on both the supply and demand side of the equation, said Jamie Woodwell, vice president in the research and economics group of MBA. Lenders have tightened their criteria in response to concerns about property fundamentals in some sectors of commercial real estate, troubles among regional banks and a more uncertain economic outlook. But investors have also been far less active as interest rates have risen and a bid/ask gap between buyers and sellers has not been resolved, leading to lower demand for acquisition loans. In the first quarter of this year, investment sales volume fell by 56% compared to the first quarter of 2022, to $85.0 billion, according to data from research firm MSCI Real Assets. In some sectors—office and multifamily—investment sales volumes fell by more than 60%.

As a result, “It’s hard to say how much of a decline we are seeing is due to lack of availability of debt vs. lack of demand for debt,” Woodwell noted. He cited recent Federal Reserve surveys of senior loan officers. In the Fed’s April survey, 42.9% of bank officers said their lending standards for commercial and industrial loans have “tightened somewhat” over the three months leading to the survey and 54.0% said they remained “basically unchanged.” But 65.0% also noted weaker demand for loans from large and mid-size firms and 61.7% noted weaker demand from small firms.

Both lenders and real estate investors continue to experience a heightened period of uncertainty regarding the health of property fundamentals in certain sectors, the volatility in the debt markets and availability of equity, according to Woodwell. When it comes to longer term mortgages, spreads have come down in recent months after widening in the wake of multiple interest rate hikes last year, so things appear to be stabilizing there, he noted.

But “in the equity markets, there is still a lot of uncertainty about where things are, folks are trying to get a sense of where cap rates are, where values are. And it’s sort of a catch-22—people want to get a sense of clarity on where things are [to start transacting], but without things happening, there’s not a lot of clarity.”

In addition, there continues to be uncertainty about where cash flows may be headed in some property sectors, office being one of them, Woodwell added. “That’s taking a bit of time,” he said. A similar story played out with retail in the immediate aftermath of the COVID pandemic, which eventually ended up with more and more investors getting comfortable with multiple retail formats. For some firms, betting on what they view as sound properties in sectors that are going through such periods of uncertainty might be an opportunity to get some upside, Woodwell noted. But most lenders and investors will typically prefer to wait it out.

Looking at which property sectors saw the greatest declines in origination volumes in the first quarter, according to MBA’s figures, these were not office or retail, as some might have expected. Instead, the biggest year-over-year decline in loan volume happened in the industrial sector, at 72%, followed by the healthcare sector, at 69%. There was a 67% decrease in loans originated for office properties and a 50% decrease in loans for multifamily properties. Hotel and retail sectors both saw origination volumes decline by 8% compared to the first quarter of 2022. Some of the difference in origination declines might be due to more favorable comparisons for property types that have been out of favor for much of 2022, like office. But the relatively modest decline in originations for hotel properties comes after a 359% increase in originations recorded in the first quarter of last year.

Woodwell expects that as the year progresses and more commercial real estate loans reach maturity (MBA estimates that $331.2 billion in commercial and multifamily mortgages held by non-bank lenders will come due in 2023), seeing the terms lenders are willing to offer during refinancing will help the market discover where true values are and get things moving on the transaction front.

“What we are looking at is about 16% of outstanding commercial/multifamily debt is maturing this year,” he said. “And so, those loans will start the process of adjusting to where interest rates are today, where values are. And as they mature and loans are refinanced or new equity comes in, that’s going to create good marks on where the market is, so people see it and start to transact.”

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